Question

what are the formulas for

NOPM for the current year as if the company capitalized its operating leases.

NOAT for the current year as if the company capitalized its operating leases.

RNOA for the current year as if the company capitalized its operating leases.

Financial Leverage as if the company capitalized its operating leases

Return on Equity as if the company capitalized its operating leases

Nonoperating Return as if the company capitalized its operating leases

Answer 1

1) NOPM (NET PERATING PROFIT MARGIN) reveal how much operating profit the company earns from sales dollar.

NOPM is affected by:-

• the level of gross profit.
• the level of opeating expenses.
• the level of competition and the company's willingness and ability to control costs.

NOPM = NOPAT / REVENUE

= $ 3,397 / $ 67,390 = 5.04%

This means that for each dollar of sales at target, the company earns just over 50 profit after operating expenses and tax.

As a reference , the median NOPM fr all publicly traded firms is about 60..

2) NOAT(NET OPERATING ASSETS TURNOVER ) measures the productivity of the company's net opearating assets.this metric reveals the level of sales the cmpany realises from each dollar invested in net operating assets.all things,equal a higher NOAT is preferable.

NOAT= REVENUE / AVERAGE NOA

= $ 67,390 / ($ 29,501 +$ 29961)

=2.27

This result mean that for echa dollar of net opearting assets, target realises $2.27 in sales.

As a reference , the median for all pay publicly traded companies is $1.4

3)RNOA(RETURN ON NET OPERATING ASSETS)

RNOA = NOPAT / Average NOA

= $ 3,397 / ($ 29,501 +$ 29,961)

= 11.43%

NOPAT=NET OPERATING PROFIT AFTER TAX

NOA= NET OPERATING ASSETS

OR,, RNOA = (NOPAT / Sales) * ( Sales/ Average NOA)

= NOPM * NOAT

NOPM= NET OPERATING PROFIT MARGIN

NOAT= NET OPERATING ASSETS TURNOVER

4)FINANCIAL LEVERAGES

• Next, assume that this company borrows $ 500 at 7% interest and uses those funds to acquire additional assets yielding the same opearting return. its net operating assets for year now total $1500 and its profit is $ 265
• we see that this company has increased its profit t $ 265 ( up from 200) with the addition of debt , and its ROE is now 26.5% ( $ 265/$ 1000).
• The reason for the inceased ROE is that the company brrowed $ 500 at 7% and invested those funds in assets earning 20%.
• the difference of 13% accrues to shareholders.

ROE= OPERTING RETURN + NON OPERATING RETURN

= 20% + 6.5% = 26.5%

5)RETURN ON EQUITY= ROE is computed as

ROE = NET INCOME / Average shareholder's equity

ROE= Operation return + NON Operating return

examle of non operating return= assume a company has $1000 in average asset for current year in which it earns a 20% RNOA .it finances those asstes entirely with equity investment (no debt)

Its ROE is cmputed as follows;- ROE = operating return +non operating return

= 20% + 0% = 20%

6) NON OPERATING RETURN